Nov. 27 (Bloomberg) -- Swedish Finance Minister Anders Borg
said he will try to limit bank borrowing in foreign currencies
in his latest proposal to curb the threat of losses posed to
taxpayers by the financial industry.

“It’s a risk that the banks are dependent on foreign
exchange funding,” Borg told reporters at a conference in
Stockholm today. The government is looking into various options
to prevent banks’ over-reliance on currency markets, including
“introducing a fee or levy to make it more costly for the banks
to expose Sweden to that kind of risk,” he said.

Sweden has already pushed through higher capital
requirements than those set elsewhere, and plans to prevent
banks under-stating mortgage-asset risks by enforcing stricter
risk weights. Borg has committed to Sweden’s more rigorous
standards after the nation’s banks expanded into the Baltics at
the height of the former Soviet states’ property boom. The
government argues Sweden’s banks, which have assets about four
times the size of the $500 billion economy, need to be
restrained to protect taxpayers.

“This is a sector that will be regulated tougher and
tougher and tougher every year going forward and they may as
well prepare for that,” Borg said. “If you’re in the banking
business then you should envision a period of five to 20 years
when the regulatory framework simply will be made stricter.”

“We have strong, stable banks in Sweden, we want them to
continue that way, and we do have a good dialogue with the
banks,” Martin Andersson, director general of the Swedish
Financial Supervisory Authority, said at the same conference.
“We see that the banks are better financed than in Europe
overall and that they have better liquidity buffers. That’s good
as we’re entering 2013 -- a year that could be pretty messy.”

Foreign Funding

Credit default swaps, which show the cost of insuring
against an issuer’s failure to repay debt, traded at 81.76 on
Handelsbanken yesterday and 89.53 for Nordea. Swaps on SEB were
113.26 while Swedbank’s stood at 120.25. That compares with
162.79 for BNP Paribas SA, 121.71 for Deutsche Bank AG and
160.23 for Barclays Bank Plc, according to data available on
Bloomberg.

“If one looks at all the short funding in the Swedish
financial system today, then 90 percent of all short funding is
in foreign exchange,” Mattias Persson, head of the financial
stability department at the Riksbank, said at the same event.
“There are advantages and there are disadvantages with that.”

Of the total securities issued by Swedish banks as of the
end of October, including certificates and bonds, 78 percent
were in foreign currencies, according to data from Statistics
Sweden. Sweden’s banks had 2.06 trillion kronor of outstanding
securities at the end of that month. Of securities with
maturities of one year or less, 93 percent were in foreign
currencies while 64 percent of securities with maturities of
more than 2 years were in foreign currencies, the data showed.

Of Handelsbanken’s total liabilities due to credit
institutions of 227.2 billion kronor as of Sept. 30, some 85
percent were in foreign currencies such as euros, Norwegian and
Danish kroner, British pounds and U.S. dollars and the rest in
Swedish kronor, according to its third-quarter report.

Consumer Debt

Swedish banks short-term market funding is mainly in
foreign currencies such as U.S. dollars, meaning that the banks’
liquidity buffers are also largely funded in foreign currencies,
according to a Riksbank report on June 1. Some 80 percent of the
banks’ liquidity buffers are in foreign currencies, it showed.

Sweden’s central bank has warned against rising consumer
debt levels, which have grown to about 170 percent of disposable
incomes. Household debt by that measure mustn’t exceed 200
percent, Governor Stefan Ingves said this month. The bank
predicts the level will remain largely unchanged at about 170
percent through 2015, after having risen from 90 percent in
1996, provided the central bank doesn’t cut rates further.

Borg, who has previously lashed out against Sweden’s banks
for not cutting mortgage rates in tandem with central bank cuts
and warned banks not too hand out surplus cash to shareholders,
today said Sweden must cut household debt levels and control
property prices to safeguard financial stability. He also said
Sweden should target annual household borrowing growth of no
more than 4 percent and that Sweden “needs to make the banks
return to more deposit-based financing.”